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On the LAMP appliance there is an FTP server already setup but the home directory is root's home directory I believe. How do I either setup a new user with a different FTP home directory or change the default one?

It should be fairly straight forward. You will find it under System>>Users & Groups. From there you should be able to either change the root home folder or add a new user (with custom home folder if desired).

You can also use the CLI (either locally, via ssh or shellinabox) instead. I can't give you the exact way to use them off the top of my head, but the commands are adduser and usermod (if you google these you should find something useful (you may want/need to add ubuntu to your search terms).

Actually, over on this thread, Aris found that usermod-d user/pathto/user/home/dir works to change an existing user's home drive.

You may find some other useful stuff there too (although its refering to TKL Fileserver, base functions (such as Webmin, ssh, sftp, shellinabox, etc) are included in all TKL appliances and act exactly the same. You can check out more about the common base functions available in TKL by looking on the TKL Core appliance page.